The fiscal cliff just got steeper
Obama's re-election portends a big fight over the national debt and lots of volatility in financial markets.
There's less uncertainty on the political landscape. But there's now more to worry about.
For a short while, Wall Street seemed to be fantasizing about a strong Republican showing in the 2012 elections, which would have brought single-party control to a notoriously fractious and dysfunctional government in Washington, D.C. That's one explanation for why the stock market had a banner day as voters were heading to the polls, rising by nearly 1 percent on a day when there was little tangible news to justify the gain.
But after a seemingly endless campaign and $6 billion worth of political spending, Americans voted to reelect President Obama, keep Congress more or less the way it's been, and continue the divided government that's been in place for the last two years. Many analysts considered that a worst-cast scenario in terms of resolving the "fiscal cliff," the huge set of tax hikes and spending cuts set to go into effect in 2013 if Washington doesn't come up with a better plan.
Since averting the cliff would require some kind of compromise between Democrats who control the White House and Senate, and Republicans who control the House of Representatives, a continuation of the status quo suggests that the same spiteful partisan squabbling that already dominates Washington will suffuse negotiations over cutting the deficit and starting to pay down the $16 trillion national debt.
"A status quo outcome will be viewed as a disappointment, and markets may sell off somewhat in the short run," wrote David Joy, chief market strategist for Ameriprise Financial, in a brief analysis of the election's consequences. "It will be viewed as an outcome which offers the prospect for continued partisan bickering on a budget deal, and which increases the likelihood of brinksmanship on the fiscal cliff."
Many analysts assumed that a Republican sweep, including control of both houses of Congress, would have raised the likelihood of a deal to rescind most or all of the tax increases scheduled to go into effect in 2013—which amount to about $545 billion. But Obama wants to raise taxes on the wealthy, which Republicans have said they won't tolerate.
That portends a nasty standoff similar to the meltdown that occurred when the U.S. borrowing limit needed to be raised in the summer of 2011, and bitter partisan wrangling went till the very last second. The borrowing limit did get raised, but the needless 11th-hour drama—plus the collapse of a broader deal to corral the mushrooming national debt—led to the first-ever downgrade in the U.S. credit rating. Over the next month, the stock market fell by seven percent.
So it's little wonder that Wall Street expects more of the same when an even bigger set of deadlines hits at the end of the year. "In a scenario in which the political makeup inside the beltway is largely unchanged from last summer, we expect an intense battle," investment bank UBS advised clients in a research note ahead of the election.
There are still plenty of ways that a divided Washington could steer clear of the cliff and spare the economy another unneeded shock. President Obama, who hasn't staked out a strong stance on deficit reduction, could grant House Republicans a few of their priorities—which mostly involve spending cuts—in order to reach a compromise. Chastened Republicans might show a stronger inclination to solve problems rather than scoring political points. Business leaders, who have been heavily lobbying for a solution, might finally bang some sense into the politicians.
But none of that will happen for a while, if it happens at all. In the meantime, brace for a few weeks that may be the bumpiest of the year so far. The election is over, but the fighting probably isn't.
More from U.S. News
You fools you votes for a free handout, but that free handout will come to an end soon when your country fall down the cliff. The only ones who will suffer are you the ones who don't know how to work for what they have not the ones who are paying for it.
When the government can't give and give free handout because 75% of the country is out of work and can't pay any more taxes
Couldn't that six billion dollars have been spent better for our country than throwing the greatest percentage of that money into lying ads and television time?
Well one flip side..... JUST MAYBE MY (WHITE) WIFE who actually HAS NEED for disability due to degenerative disk, spinal arthritis, sciatica, bulging disks, etc., maybe she will actually get what she needs.
ONE CAN ONLY HOPE with the millions of lazy good for nothing WELFARE RIDERS who have really no need for it as they are ABLE BODIED.
No this isn't meant as bigoted, quite the contrary, it's the system that is bigoted. We have fought for this and have been denied time and time again.... while some of those she has worked with who are of different racial persuasions slip in with NO. PHYSICAL. ISSUES.
What a joke. And people say ole YT is a bigot.
CBO projects a minor recession during the first half of 2013 if we go over the cliff (which cuts the budget deficit in half). However, it estimates we'll have higher growth in the long-run with lower deficits and debt. So S-T yes its a problem, long-term it isn't.
Going entirely over the cliff puts revenue and spending back towards historical averages...nothing to see here, move along.
Well Obama fans, hope you are happy today. If you had taken the time to listen all these months and millions of dollars ago you would have known that your freedom died yesterday.
In just the Obamacare plan, the supplemental health policies are going to go away for anyone on Medicare. Take the time to do a search in your area for a doctor who acceps Medicare. You won't find any. So when anyone on Medicare needs their medicine refilled just how do you think they are going to be able to get their prescriptions filled without a doctor to write the prescription.
Think oh well you can just go to a clinic. Wrong - if you have an income over $1000 a month cant go to the free clinics.
Come January let me know how much your health insurance premiums jump. Why, because he has just opened the door for free reign and believe me when I say they will blame it on implementing Obamacare.
All you people that think that people with pre existing conditions can now get coverage. They always could for a price. Didn't hear the rest of the story? Google expectations of the premiums for people with pre existing conditions.
Have you people read the plan. Well I have page by page. Think you made an informed choice - read the plan. Think you will be unpleasantly surprised.
Take a close up look at his wedding band. Do a search on Muslim rings. Surprise.
Google or do a search on what Mr. Obama wrote his college papers on. Try and figure out how he got a scholorship to go to Harvard with aid for foreign students.
Unemployment is at an all time high, so is the suicide rate. That isn't making headlines.
Where was Mr. Obama at when the prime minister of Isral attempted to meet with him, not once but twice. One of our greatest allies. He cant seem to find time to meet with him?
How many illegals are we giving college funds to now - the children of illegals, one of his promises to help ensure the hispanic voters. Can't help the elderly, disabled, or the vets, but by all means lets provide the illegals of this country whatever they need;
There are many other things such as letting our Ambasssor die in the September 11th attack.
You might not agree with anything I am saying but if you had not blindly elected this leader and taken the time to do your research you wont be able to deny that everything I have listed is the truth.
There are none so blind as the stupid.
Put your seat belt on this is going to be quite the ride.I have lost hope in people in America. If congress has a 8 percent approval then why in the hell do they vote all of the a$$holes back in. OMG America you proved it your dumber than a box of rocks. I do hope you get what you voted for 4 more years of nobody driving this bus. NOBODY !! OFF THE CLIFF WE GO. 4 more years of Obama just watch your health care costs go up.watch everything go up also. 40 percent of grads work for other feilds then they where trained. I think i'll go sip a cool drink somewhere else for 4 years. Remember there are 1.7 million ****s looking for your job thanks to our Obama. Way to sell us out for votes you A$$WIPE Goodby America See ya in 4 years Good luck you will need it !!! .Please remember DIVIDED WE FALL !!! Thats how he won . He's going to do less then he did the first 4 years. Remember the russian statement. I'll deal better after the election. OK he told you he was dishonest now I'm going to laugh like hell from my lawn chair on a sandy beach way down south as he ( Obama ) breaks it off in your a$$es
Copyright © 2014 Microsoft. All rights reserved.
Breaking up big banks is an untested solution to the too big to fail problem that attempts to isolate and dismantle large, troubled institutions while protecting the rest of the economy.
VIDEO ON MSN MONEY
[BRIEFING.COM] The stock market began the last week of July on a quiet note with the S&P 500 ending less than a point above its flat line. Like the benchmark index, the Dow Jones Industrial Average (+0.1%) also posted a slim gain, while the Russell 2000 (-0.5%) and Nasdaq Composite (-0.1%) lagged throughout the session.
The major averages were awakened from their weekend slumber with an opening retreat that pressured the S&P 500 below its 20-day moving average (1975). Even though ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'